MONTSERRAT
Table of Contents
ECONOMIC OVERVIEW
Montserrat, a British Overseas Territory situated in the Caribbean Sea, spans an area of 102 square kilometers (39 square miles). Characterized by tropical volcanic terrain and a small coastal lowland, it lacks significant natural resources. Following volcanic activity in 1997, its capital, Plymouth, was abandoned, leading to a mass exodus or relocation of residents to the island’s northwest. The economy of Montserrat primarily relies on construction and government services, which jointly constituted roughly 50 percent of its GDP in 2000, amounting to EC$76 million. Conversely, banking and insurance sectors contributed less than 10 percent to the GDP during the same period. The unemployment rate stood at approximately 6 percent in 1998.
Despite being home to a small domestic financial sector, Montserrat has witnessed a decline in offshore finance, with only 11 offshore banks remaining. Additionally, the insurance, company, and trust services sectors hold minimal significance. There is no presence of securities business, whether domestic or offshore. Similar to other offshore centers, Montserrat does not tax offshore corporations. Moreover, it imposes no exchange controls for transactions below EC$250,000, and its official currency is the Eastern Caribbean Dollar. Montserrat is a member of the Eastern Caribbean Currency Union. All employed individuals must contribute income tax based on set tax brackets ranging from 5% to 40%, with a yearly tax threshold of $15,000.
Income tax
All individuals who earn income are obligated to pay income tax, as outlined in the income tax tables. The tax rates vary from 5% to 40%, but there is a yearly tax threshold of $15,000 per annum. According to the Income Tax Act, income tax must be paid at the specified rate or rates on any person’s income earned within or outside of Montserrat, regardless of whether it is received within Montserrat or not. This applies to income derived from any source, subject to the provisions of the Income Tax Act. This includes: Profits from any business, profession, or occupation, regardless of the duration of the activity. Earnings from employment, including the value of provided accommodations or benefits, excluding travel allowances for leave purposes. The yearly value of land and improvements used for personal purposes, not for profit, based on either the fixed rental value or 5% of the property’s market value, whichever is higher. Returns from investments such as dividends, interest, or discounts. Any pension, fee, or regular payment. Income from property rentals, royalties, premiums, or any other source. Any annual gains or profits not falling under any of the foregoing heads
The income tax rates for assessments starting from January 1, 1999, are as follows:
On every dollar of the first $2,500 of chargeable income – 20 cents in the dollar On every dollar of the next $6,000 of chargeable income viz. from $2,500 to $8,500 – 25 cents in the dollar On every dollar beyond $8,500 of chargeable income – 30 cents in the dollar.
Social Security
Starting from April 1, 2022, the Regulations mandate that every employed individual in Montserrat contributes 5% of their gross income to the MSSF (Montserrat Social Security Fund). Additionally, employers are required to remit 6% of the employee’s gross income to the MSSF by the 14th day of the following month. Even after reaching the Pensionable Age, individuals can still contribute 1% of their gross income to Employment Injury benefits. Both employees and employers are responsible for making these contributions. The Regulations allow for the adjustment of contribution rates for different categories of insured individuals and employers. Social Security Benefits include: Sickness benefit: Periodic payments to an insured person unable to work due to illness or injury unrelated to employment. Maternity benefit: Payments to insured women during childbirth. Invalidity benefit: Payments to insured individuals permanently unable to work due to non- employment-related causes. Survivor’s benefit: Payments made to survivors of insured individuals who die from non- employment-related causes. Funeral grant: Payment towards burial expenses upon the death of an insured individual or their spouse. Age benefit: Payments to insured individuals upon reaching 60 years of age.
Deductible Expenses
To calculate a person’s chargeable income, all legitimate expenses incurred during the basic year in generating income are deducted. These expenses include: Interest payments on borrowed money, provided the Comptroller verifies that the interest was paid on capital used to generate income. Rent paid for land or buildings occupied to generate income. Expenses for repairing premises, machinery, or items used in generating income. Bad debts related to any trade, business, profession, or vocation. Land or building rates and taxes (excluding income tax). Contributions to approved pension or superannuation funds as ordinary annual contributions. Premiums for insurance policies covering property loss due to various events like fire, earthquake, burglary, etc., used in generating taxable income. Annuities or annual payments, whether originating within or outside Montserrat.
Property tax
Montserrat property owners are billed an annual residential land tax rate of 0.05% and building tax rate of 0.025%. Property owners were eligible for a 5% discount for early payment if taxes for 2023 were paid before the due date. These bills were generated using the newly acquired Property Tax System, which had been specifically developed for the Government of Montserrat and included robust security features such as user and data access controls. While the layout of the bill remained similar to the previous system, the new system allowed for the entry of details of all registered owners of a property separately. However, in cases of multiple owners, only the first owner listed on the Land Register at the Land Registry was displayed on the bill, followed by the term ‘et al,’ which covered two or more owners, as per Section 23 of the Property Tax Act. The 2023 bills did not include amounts due for overdue taxes due to incomplete data validation. This information was expected to be available in the next billing cycle.
Withholding tax
Non-resident companies operating in Montserrat are subject to withholding tax, as outlined in section 40 of the Income Tax Code. This tax applies to the profits remitted from their business activities in Montserrat for any assessment year. This withholding tax is applicable in addition to the regular income tax that would apply if these profits were earned by a wholly owned subsidiary of a non-resident company.
Stamp duty
In Montserrat, there is a stamp duty or non-citizen landholding license fee set at $2500 or 5% of the property value, whichever is higher. While these costs can vary, they are generally reasonable compared to other Caribbean real estate markets.